A common goal for individuals when creating their estate plan is to avoid having assets pass through their estate. This may be to reduce probate fees, or to reduce the number of assets that could become tied up in a wills variation claim.

One solution to prevent assets from passing through an estate, which comes with pros and cons, is transferring property (real estate, bank accounts, etc.) into joint names with another person or other people, usually the intended recipient(s) of the asset.

However, a transfer into joint tenancy alone may not achieve the goal of keeping assets from forming part of the estate. A transfer into joint tenancy may have tax consequences, reduce the transferor’s control over their asset, and open up the transferor to claims of creditors of the joint owners. A joint tenancy together with Bare Trust planning may help avoid some of these issues.

Bare Trust planning allows the transferor to transfer the legal interest in their property to the Trustee of the Bare Trust, and retain the beneficial interest in the property for themselves.

When the beneficial ownership in property is retained by the transferor, the transfer of the legal ownership is not considered a disposition for tax purposes.

To ensure the transfer is not considered a disposition by the Canada Revenue Agency, or any others who have an interest in the property, it is important to document the Bare Trust planning in a Bare Trust Declaration. It is also important to ensure the parties conduct themselves in a manner that aligns with the intention of the transferor of retaining the beneficial interest in the property. Further documentation, together with the Bare Trust Declaration, may be required to document the transferor’s intention for the asset after his or her passing.

By retaining the beneficial interest in the property, the transferor maintains control over the property, keeps any benefits derived from the property, such as rental income or interest and is responsible for the expenses and taxes associated with the property.

The Bare Trust is truly “bare” as the Trustee of a Bare Trust has very few active duties, and is acting as the “agent,” or “nominee” of the transferor (the settlor). Generally, the Trustee of the Bare Trust has no discretion but must take direction from the transferor, and is required to deal with the assets of the Bare Trust in accordance with the transferor’s specific stated intentions after passing. This allows the transferor to continue to use and enjoy their property. Like other Trustees, the Trustee of the Bare Trust will still be expected to safeguard the assets of the Bare Trust.

However, clearly documenting the transferor’s intentions, the Bare Trustee can still go rogue and act in a manner inconsistent with the Bare Trust planning. Most property ownership documents will not indicate whether there has been any Bare Trust planning, and third parties may not be aware of the arrangement between the transferor and Bare Trustee, when taking instructions. This may create some difficulties for the transferor to enforce the Bare Trust planning.

With the introduction of the Land Owner Transparency Registry (the “Registry”), all land transfers with Bare Trust planning must be disclosed by filing a Transparency Declaration and a Transparency Report, that discloses all of the beneficial owners of the land. The requirement to file the Transparency Declaration and the Transparency Report adds a small additional cost to the transaction, but also makes the Bare Trust planning public information through the Registry.

Information about beneficial owners will not appear on title to the property, and can only be obtained by searching the Registry.

Although Bare Trust planning has many benefits, it still may not be suitable for all clients or situations.